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TMI Blog2018 (3) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial reasons. Therefore, there is uniformity in act of assessee in not charging interest from A.Es and non-A.Es. Considering the nature of business of assessee and the facts explained above, we are of the view that there was no justification for the authorities below to make adjustment to the income declared by assessee. Adjustment to the income of the assessee is wholly unjustified on account of interest on receivables - Decided in favour of assessee - ITA.No.6331/Del./2016 - - - Dated:- 26-2-2018 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Assessee : Shri Anubhav Rastogi, Advocate For The Revenue : Shri Sanjay Kumar Yadav, D. R. ORDER PER BHAVNESH SAINI, J.M. This appeal by assessee has been directed against the assessment order dated 07th October, 2016, for the A.Y. 2012-2013 under section 143(3)/144C(1) of the I.T. Act, 1961, passed by DCIT, Circle-17(1), New Delhi, on the following grounds : 1. The Learned Assessing Officer ( Ld. AO )/ Learned Transfer Pricing Officer ( Ld. TPO ) (following the directions of the Learned Dispute Resolution Panel ( Ld. DRP )), have erred on facts and in law in en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology products. The assessee filed the return of income declaring total income of ₹ 8.57 crores for assessment year under appeal. During the relevant assessment year, assessee undertook the international transactions with it s A.Es which were duly reported in the accountant s report filed with the return of income, details of which are noted in the impugned order. The TPO accepted all international transactions to be at arm s length except the payment of interest on loan. During the course of assessment proceedings, the TPO directed the assessee to submit information pertaining to receivables, services rendered and sale of I.T. products. The assessee submitted details called upon by TPO. The TPO arrived at the conclusion that assessee was not correct in not charging the interest on receivables from it s A.Es. Hence, he computed the interest on outstanding receivables beyond 30 days treating them as deemed loan. The assessee filed the objections before DRP challenging the enhancement to the income by ₹ 22,40,719. The assessee referred to the submissions filed on record in order to convince the TPO that the average outstanding days for recovering sales due was 57 day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the contentions of the assessee regarding treatment of transactions on account of outstanding receivables because of the retrospective amendment of Section 92B(1) of the I.T. Act, 1961 covered all such transactions i.e., International Transactions . It was also noted that the table prepared exhaustively by the TPO as apparent from the order lucidly depicted the names of the entities, their countries of location with which the assessee transacted internationally, the date and number of invoice with amounts and their currency denomination with their conversion rates, number of outstanding days and actual date of collection and collection of interest @ average monthly LIBOR plus 300 bps assuming 30 days to be the allowable credit facility without interest. The table prepared by the TPO was found correct. It is also noted that there was a delay in recovery of outstanding debts by the assessee, undoubtedly on which no interest was charged by the assessee. The TPO applied interest @ LIBOR + 300 bps on all the delays in recoveries beyond 30 days. It was also noted that in the process of belated repayment of the outstanding receivables, the assessee was indisputably exposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich in para-17 of its order, the Tribunal held as under : 17. From the above analysis, it is clear that assessee had earned significantly higher margin than the comparable companies (which have been accepted by the TPO) which more than compensates for the credit period extended to the AEs. Thus, the approach by the assessee of aggregating the international transactions pertaining to sale of goods to AE and receivables arising from such transactions which is undoubtedly inextricable connected is in accordance with established TP principles as well as ratio laid down by the Hon'ble jurisdictional Fligh Court in the case of Sony Ericsson Mobile Communication India (P.) Ltd. {supra). For the aforesaid reasons, we allow the appeal of the assessee. It ordered accordingly. In this case, assessee had undertaken a working capital adjustment for the comparable companies selected in the T.P. report. 4.1. He has submitted that the said decision has been confirmed by the Hon ble jurisdictional Delhi High Court in the case of Pr. CIT vs. Kusum Healthcare Pvt. Ltd., in ITA.No.765 of 2016 dated 25th April, 2017, in which in paras 8 to 12 the Hon ble Delhi High Court held as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT vs. Indo American Jewellery Ltd., (2014) 223 Taxman 8 (Bom.) (HC) in which it was held as under : Where there was complete uniformity in act of assessee in not charging interest from both Associated Enterprises and non-Associated Enterprises debtors for delay in realization of export proceeds, Assessing Officer was not justified in making addition of notional interest to assessee s ALP on aforesaid ground in course of transfer pricing proceedings. 4.4. He has submitted that only in the case of loan, the average LIBOR could be applied. In support of this contention, he has relied upon the order of the Rajasthan High Court in the case of CIT vs. Vaibhav Gems Limited (2017) 88 taxmann.com 12 (Raj.) (H.C.) in which it was held that Where assessee extended loan to it s A.E, adjustment should be made at average LIBOR rate existing at that time, i.e., at 0.79 percent, instead of LIBOR + 2 percent. Learned Counsel for the Assessee, therefore, submitted that whole addition is unjustified. 4.5. Ld. D.R, on the other hand, relied upon the orders of the authorities below and submitted that Section 92B(1)(c) provides that receivables itself is an international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of outstanding receivables from both A.Es and non-A.Es which is due to business and commercial reasons. Therefore, there is uniformity in act of assessee in not charging interest from A.Es and non-A.Es. Therefore, the decision of the Hon ble Bombay High Court in the case of CIT vs. Indo American Jewellery Ltd., (supra), squarely apply to the facts of the case. 5.1. Considering the nature of business of assessee and the facts explained above, we are of the view that there was no justification for the authorities below to make adjustment to the income declared by assessee. Recently, the ITAT, I-2 Bench in the case of Terradata India Pvt. Ltd., vs. ACIT in ITA.No.7885/Del./2017 vide order dated 21st February, 2018, following the order in the case of same assessee, in which the decision of Hon ble jurisdictional Delhi High Court in the case of Pr. CIT vs. M/s. Kusum Healthcare Pvt. Ltd., (supra), have been relied upon, allowed the appeal of assessee on the similar ground. In view of the above discussion and in the light of various decisions above and facts of the case, we are of the view that the adjustment to the income of the assessee is wholly unjustified on account of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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